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The Smartest Guys In the Room?

For those who are too young to recall, or who just weren’t into business news at the time, the end of 2001 saw one of the most dramatic, spectacular, and of course unfortunate downfalls in the history of corporate America. I am referring of course to the infamous Enron scandal that not only brought about the bankruptcy of the energy trading giant for which it is named; but led to the dissolution of accounting stalwart Arthur Andersen, and unfortunately wiped out the savings of thousands of Enron employees. If you’re not familiar with the story, I’d recommend McLean and Elkind’s 2003 book The Smartest Guys in the Room, and/or the CNBC documentary that is based upon the same.

Some people see the Enron saga as a tale of corporate greed run rampant. I prefer to see it as a cautionary tale of a corporate culture that not only enabled but encouraged greed and bad behavior. People often ask how something like Enron ever happened in the first place? We have lawyers, accountants and SEC regulations that are suppose to protect against such things. If we look at this through an organizational culture lens, however, it becomes very easy to understand how it happened.

To level set, let’s remember that culture is the combined habits, norms and beliefs of the people in an organization (Schein, 2004). Another way to think about of culture is to ask what do the people in the organization take for granted? The norm at Enron was to take any risk and ethical shortcut as long as it made money. The leaders at Enron believed they were smart enough to eventually make any hair brained scheme work (e.g., trading unused bandwidth, weather derivatives); and if any particular plot failed the next one would surely work. Most of all, they took for granted that they would never get caught in any of the lies they spun to try to cover up when their attempts lost money. In other words, Enron had a culture that encouraged the kind of misbehavior that led to their downfall.

So why is understanding the culture of Enron so important? Just look to the old saying that those who fail to learn from history are doomed to repeat it. Sure we have the Sarbanes-Oxley Act now that includes a ton of new rules meant to prevent another Enron. But as we learned from Enron’s involvement with California’s energy degradation, the second new rules come out, someone is looking for a loophole. Somewhere right now there is a company with a culture that is just as unscrupulous as Enron was, and unless we learn to look for that and address it the whole thing could happen again.

About the Author

Jimmy Brown, Ph.D. is a senior level management consultant with eighteen years of experience leading efforts to develop and implement practical strategies for business performance improvement. Dr. Brown has held senior level consulting positions at leading firms such as Booz-Allen & Hamilton, Accenture and Hewlett-Packard.